China’s High-Income Future

At the recent meeting of G-20 finance ministers in Shanghai, many expressed concern about China's chances of reversing its economic downturn. If recent research debunking the so-called middle-income trap is correct, and China maintains the momentum of its structural transformation, such fears may turn out not to be warranted.

LONDON – “What if this is ‘as good as it gets’?” Jack Nicholson asks, as he walks through his psychiatrist’s waiting room in the eponymous film. At the recent meeting of G-20 finance ministers in Shanghai, participants were asking much the same question – and not just with regard to medium-term expectations of weak global growth. Many are now wondering whether China’s current growth rate will be as good as it gets for a long time to come.

Determining the validity of such fears requires understanding what is driving China’s economic slowdown. Some offer a straightforward explanation: China, along with other major emerging economies, has become ensnared in the dreaded “middle-income trap,” unable to break through to advanced-economy status. But this assumes that some exogenous force or tendency causes countries to become “stuck” at a particular income level – a view that one academic study after another has debunked.

To be sure, countries do often struggle to achieve high-income status. According to the World Bank, only 13 of 101 countries classified as middle income in 1960 had reached high-income status in 2008. Moreover, some middle-income countries, after promising growth, spent decades “trapped” at a certain per capita income level. Argentina, for example, kept pace with the United States in per capita income growth from 1870 to 1940; since then, the gap has been widening steadily. In this manner, even countries that make it to high-income status sometimes regress to middle-income levels.

The overall analysis of the author is correct. There is no reason to believe that China will fail to achieve a per-capita GDP of at least 75% of the U.S. It is noteworthy in this context that Singapore, Hong Kong, and Taiwan have all reached 75% of U.S. per-capita (PPP) GDP or more (actually a lot more). The key determinant of whether a country reaches "fully-developed" status appears to be the skill level of the population (as measured by PISA, TIMSS, and PIRLS). By these measures China ranks very high.

Some people argue that Shanghai, Macau, Singapore, and Hong Kong are unrepresentative (cities and city states). However, Taiwan has a population of 23.5 million and is not a city state. China's overall level of education is already high and will rise considerably over the next 20-40 years (particularly in the poorer and more rural parts of China).

Fear not for China's innovative capacity. If you need reassurance, read 'Science and Civilization in China' (Cambridge), a 27 volume compendium that demonstrates that China invented everything prior to 1800.

But China is not innovating. It is regressing. This article, like too many written by economists, suggests that it is all about economic decisionmaking. It is not. China is quickly reverting to Mao 's "heydays" in the fifties: Oppression is increasing and, as a logical result, innovation is decreasing. No economic measure can undo that.

China has not embraced the ideology of the Western cosmopolitan elite (so far). That makes China a "bad" country for the likes of MVA. However, Western cosmopolitanism is (strongly) associated with economic stagnation and decline (and societal decline as well). Sure people like MVA don't like it. Just another reason to think China has a strong future.

Quite frankly I don't trust nor need the media, neitger Chinese, nor Western, to have an opinion on what is going on in China. Having lived and worked there for almost 20 years, I have seen the progress of the nineties s and the first 10 years of the first decenniumof the current century and the decline that set in with the appointment of Hu and Wen.

In fact, I was optimistic when Xi and Li became the leaders. But I am now extremely disappointed. The repression that is going on in academia and the press is astounding. The way education is to be used to create a newly subservient-to-the-cpc generation will not help China's ascent in the world. Just ask the North Koreans!

See my comment above. Western media is reluctant to inform us of China's progress – but that doesn't mean it isn't happening. Western media is eager to convince us that China is becoming more 'repressive' (because freedom, obviously) but that's as much a fiction as the notion that its economy is 'slowing down'.

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